Let’s start with a few cliches’ shall we? I’ve heard “begin with the end in mind” and the old standard “no one ever plans to fail they just fail to plan.” My favorite comes from the movie, The Hunt For Red October. Fred Thompson, the actor-turned-senator-turned potential presidential candidate, said to Jack Ryan (Alec Baldwin), “the Russians don’t take a dump son without a plan.”

Did I have plan? Sort of. Did I follow it? Not really. I got into real estate because I wanted financial independence. That’s it. And in January of 2006 I could have had it. I owned $16 million in real estate (single family homes) with about $8 million in equity. I could have sold everything off and owned my own home and 10 rental houses free and clear. That would mean being debt free with passive income of at least $10,000 per month. Not a bad life.

Forget about the real estate market going up or down for a minute while I fill in the blanks. In January of 2006 I had what I thought I wanted. I COULD HAVE BEEN DEBT FREE and had $10,000 a month in passive income. But, I didn’t follow my loosely formulated plan. I kept going because:

I was only 34 years old, what else was I going to do with my life?

I had a staff of 8 people, what was I going to do? Fire them?

I had investors who were counting on me for above average returns.

I believed that worst case scenario the market would drop 20% and I would still be ahead.

These were all noble reasons to stay in the game, indeed. But, what I didn’t know is that the real estate market had hit its peak in August of 2005. While prices hadn’t started to go down yet (pricing is always a trailing indicator), inventory levels were skyrocketing. By the time I figured out what was happening it was too late. I kept going and here’s the rest of the story:

At 37 I’ll probably have to work until I die to pay off all of my debt.

I had to lay off the 8 people who I cared about so much because my business collapsed.

My investors lost all of their money just like I did.

The worse case scenario was even more worse and the market dropped by almost 50%.

The morale of my story is this…know EXACTLY what you want BEFORE you start investing in real estate. Do you want to replace the income you currently have? Do you want to build long-term wealth? Be very clear about your objectives and write them down so you remember. That way you’ll know when the time is right to exit stage left gracefully. If you do this everyone will win, even if it doesn’t seem like it at the time.

I remember Napolean Hill’s quote about planning. He said, “reduce your plan to writing. The moment you complete this, you will have definitely given concrete form to the intangible desire.”